0. Chapter 12 Mergers and Acquisitions
as Vehicles

1. Introduction - MERGER VS. ACQUISITIONB C
The consolidation or combination of two or more companies
Merger + A B A
One company acquires another through stock purchase or exchange
Acquisition +
The “merger” of Daimler with Chrysler is considered by many to have been an acquisition in disguise

2. WHY MERGERS AND ACQUISITIONS HAPPEN
Introduction
WHY MERGERS AND ACQUISITIONS HAPPEN
Mergers and acquisitions are motivated by the same reasons
that motivate alliances such as joint ventures and contractual
arrangements.
Additional value created by an M&A derived from synergies
due to increased revenue and decreased cost that come
from combination of the two companies.

3. possible with organic growth.
Introduction
M&As allow company to grow the business faster than is
possible with organic growth.
M&As attractive when management unable to negotiate a
contract in which benefits exceed costs of the business
relationship, management feels need for greater control over
operations, and management seeks to control risk exposure.

4. Introduction
Personal factors can enter into an M&A decision, such as
opportunistic behaviour by top executives.
Increasing size of company can increase personal
compensation and enhance personal power.
Executive’s employment risk is reduced.

5. Why Mergers and Acquisitions Fail? 1. poor strategic rationale
Introduction
Why Mergers and Acquisitions Fail?
1. poor strategic rationale
2. a mismatch of cultures
3. difficulties communicating and leading the
organization poorly
4. integration planning and execution
5. paying too much for the target company.

6. The Merger & Acquisition Process
1. IDENTIFYING CANDIDATES
The strategic rationale for using M&As informs what is
wanted in the potential candidates.
Setting up criteria on this basis means that the
targets will fit the strategy and capabilities of the
company.

7. The Merger & Acquisition Process
2. PRELIMINARY TALKS
The few companies that are identified as attractive
candidates are approached and asked about
their interest in a merger or an acquisition.
The talks can initially involve exploratory talks
between chief executive officers about their
interest in a possible combination.

8. The Merger & Acquisition Process
3. ASSESSING FIT OF THE POTENTIAL
CANDIDATE
Having agreed on the possibility of a merger or acquisition,
it is time to assess the fit of the targeted company. This
includes external and internal analysis.
External analysis involves understanding the driving
forces in the macro-environment that will affect the
industry and the business in terms of its size, growth,
and profitability.

9. The Merger & Acquisition Process
Internal analysis involves learning enough about
the other party so that the potential deal can be
appropriately valued, the representations and
warranties of the other side tested, full disclosure
can be made to investors, and post-merger
integration can be planned.

10. The Merger & Acquisition Process
4. NEGOTIATING TERMS
When the two sides are sufficiently in agreement
over the general terms of the deal, they may
commit their understanding to a term sheet
and/or a letter of intent.
This confirms the growing level of commitment to
the deal and guides lawyers who are drafting the
definitive agreement.

11. The Merger & Acquisition Process
5. DEAL SIGNING THROUGH APPROVAL
Before the CEOs sign the definitive agreement,
a vote by the target’s board of directors and
possibly by the buyer’s board as well is required.
If a vote by the shareholders is required, the
target’s board can recommend whether they
approve the deal.

12. The Merger & Acquisition Process
6. INTEGRATING THE ACQUISITION
Ideally, planning for integrating the two companies
begins while due diligence is being conducted.
At this stage, plans will be general and then
specified in greater detail when more information
is available after the deal is completed.
Otherwise, the plans will have to be prepared
after the deal is completed and this will slow down
integration.

13. The Merger & Acquisition Process
Senior management team looks for areas where integration
can lever the performance of the business. There are six
areas that have significant potential:
1. Customer Strategy and Branding
2. Capabilities
3. Corporate Culture
4. Business Logic
5. Staffing
6. Information Technology

14. Acquisitions in Different Industry Contexts - M&As AND INDUSTRY LIFE CYCLE
Introduction
M&As tend to be R&D and product- related
Growth
Maturity
M&As tend to be for acquiring products that are proven and gaining acceptance
M&As primarily for dealing with over capacity in the industry

15. Acquisitions in Different Industry Contexts - M&As IN DYNAMIC CONTEXTS
Technological change
RIM and Open Text both use acquisitions to ensure they maintain their strong competitive positions
Demographic change
Recognizing the increasing number of languages and cultures
immigrating to Canada, Rogers Communications purchased the multi-cultural channel OMNI 1 in 1986
Geopolitical change
IBM divested its PC division to a Chinese company as that country emerges
Trade liberalization
Wal-Mart acquired Mexican retail giant, Cifra, in wake of NAFTA
Deregulation
BCE, the parent to Bell Canada, was allowed to operate as a monopoly until 1992 when the CRTC opened the doors to long distance competition for the first time in Canada